To What Extent Should the State Involve Itself in the World of Business?

The power of the state to run the country can either bring joy or misery to the people. Economics is definitely one of the top priorities of the people because of concerns the livelihood of the people and the state can alter the business climate of the country. Vigorous tax cutting policies such as that of US President George Walker Bush or France pPesident Nicholas Sarkozy can either spur investment or worsen the income gap between the different classes. Protectionist measure can also help the economy to develop under shelter or undermine its competitiveness. As such, the state's involvement in the organisation and management of business in their country must have gone through much deliberation. The state's interference therefore, must only be in the initial development of the economy itself, thereafter, government should allow the market forces to take its effect so as not to upset the natural balance of the economy.

Many countries have cited the 'infant industry' argument when it comes to protectionist measures that ostensibly allow their economy to grow and develop to an extent they are able to compete with the Multinational Corporations (MNCs). This is a valid argument provided the state's protectionist shelter is only extended in the economy's infant state. The effect is that while the MNCs are not allowed to dominate the countries' economy and overshadow the local companies in the country who may be small start-ups with little experience and weak foundations, these companies can then grow and eventually be competitive enough to vie for business with the foreign companies on equal grounds. This is clearly demonstrated in many countries especially those in the European countries in their early years who had protectionist measures against the American companies and rise up to the level they are at today.

The direction of the government who are prescient in their outlook in encouraging certain industries to develop to gain as advantage in the global economy will help businesses themselves grow. Companies' investment in certain industries so as to diversify and participate in the world bloom can be very much encouraged by the state's initiatives. The A* research institution was set up by the Singapore government to develop its biomedical sector and so far it had yield results as pharmaceutical companies have set up their research branch there and able to improve as an industry. A positive business climate is also instilled in the country by the SPRING Singapore which helps the small and medium enterprises (SMEs) to develop through funding of their initiatives.

The state should also involve itself in articulating the needs of the society such as concerns in the area of environment and health. As the global phenomenon moves towards green business, the state should implement policies that can enhance the green value of the society. This can be done through the funding of green initiatives of certain companies, as in many Scandinavian countries that support cleaner sources of fuels for companies. The health consciousness of the people are also addressed through compulsory labelling rules such as in America where Genetically Modified food are labelled so that people will be cognisant of what they are consuming. This demonstrates the government's role in ensuring consumer rights and regulating business ethics. Furthermore, the government can also act as a watchdog for safety concerns as businesses will have to be accountable to the government who is accountable to the people and workers.

In times of crisis, the government's involvement in the regulation of commodities is essential to the easing of nerves in the country, and ensure these commodities, under the natural market forces of prices mechanism, do not end up concentrated in the hands of the rich, leaving the lower ranks of people unable to live their normal lives. Many Southeast Asian countries such as Malaysia, for an instance, have done well in this aspect. In the recent rice crunch that resulted in panic buying and concerns over the lack of rice, many of these governments have started subsidising the prices of rice and even oil whose price has also soared. This ensures the lower income and middle-lower income do not feel the impact as hard. In contrast, if the market was left to its own devices and without intervention by the state, there is possibility that the mad rush will result in the price spiralling out of control leading to the shortage of food for the poor who can not afford such sky high prices.

On the flip side, many of these policies also cause negative consequences that limit the potential of the economy and can even cause social unrest if done excessively.

Protectionist measures for instance, can and will undermine the local companies' ability to genuinely compete on equal grounds with MNCs. The Zaibatsu in Japan had started out being shielded from the strong competition for MNCs in its initial start-up years. However, due to this over-protection, complacency seeps in and eventually these companies became 'Zombie' business and could not even sustain itself in the domestic market, let alone in the international economy. A recent example will be that of the Indonesian economy. The court upheld the rule that Temasek Holdings had to give upon its indirect shares of less than a third in their two biggest telecommunication companies, the Indosat and Indonesia Telkom despite the Indonesian government holding the majority stakes. Although the government's concerns that foreigners may encroach on their strategic industry is a legitimate one, their degree of interference may be too extensive because it may reflect badly on the economy of their country. This is because investors may mistake this act as a sign of control of the economy and affect the foreigners' confidence of their ability to invest and ensure profitable return in a country with such nationalistic sentiments. In this instance, the state's involvement may instead limit the economy's potential to prosper.

Policies that may have good intentions of improving the status of the underprivileged or a certain class of society may also undermine the economy's competitiveness. Malaysia's rule that all companies in their country must have majority stakes by Bumiputras may not only be ineffective in lifting the Bumiputras' economic status, these foreign companies may be deterred from setting up companies due to doubts of profitability or worse, circumvent the rule by getting Bumiputras to merely sign their names as an official title but without genuine involvement. This will also mean the state's interference has not only did not bring positive effects but also built a glass ceiling that stops the economy from showing its full potential.

Furthermore, governments engage in businesses to add to their coffers as well. One government that embodies negative interference is North Korea. Not only does the North Korean government halts the economy's growth by allowing only minimal contact with the outside world, they themselves engage in illegal drug smuggling of heroine and the printing counterfeit greenback. Yet, this may be merely an extreme example of the government acting as the manager of the business that happens to be illegal although it still demonstrates the failure of the command economy.

On a different note, the state's minimal involvement can sometimes also allow the economy to grow and flourish spontaneously. The Silicon Valley is now a place many desire to go to advance their career in technology and it churns out lots of successful technology integral to out electronic devices nowadays. Yet, this was due to the lack of governmental control rather than a deliberate policy to create such an area. Therefore, this lack of interference can sometimes be good for the business in the country. Yet, it is clear the nature of the society is that the Americans are generally more adventurous and thus willing to take the risk to set up the business. In certain economies that may not be entrepreneur-prone, this lack of control may not bring the same efforts without the push of the government, which is why the Singapore government pumps in so much funds into developing entrepreneurship in a country where most are risk-averse.

It is optimal that the state's involvement in the world of business is minimal and limited to the initial stage of development to kick start the economy to be more competitive. Thereafter when the economy has flourished, superfluous interference in the corporate affairs may render the economy disabled and unable to exert itself on the international stage. Instead, what the state needs is outstanding individuals who stand up to lead the industry or business world into a new stage where everyone is able to contribute and utilise their full talents to boost the development of the economy. In other words, business should be the works of the people, not the state.